2021 Budget, Business Owners and Tax!
The Chancellor of the Exchequer, Rishi Sunak, delivered his latest 2021 Budget statement on Wednesday 03 March 2021. How does this impact the potential tax business owners will pay on selling a company?
Having been at the sharp end of business now for many years, in our view, the spoils of business ownership are THE key driver of entrepreneurs making investment. Individuals start and grow businesses for various creative and altruistic reasons. But the no.1 driver is to create economic wealth. It’s so ingrained in capitalism that company law enshrines the ‘right to make profit’.
The right to make profit has a nemesis – tax. It’s pretty obvious even to a non-business person that increasing tax discourages investment – why should a business owner take substantial risk over years and decades only to heavily pay for this at the end through high taxes?
(Unless of course you don’t think there is risk – a view held by a number of public servants who have never run a business…).
One of the great economic miracles in the UK has been the explosion of private business ownership since the 1970’s. This revolution in business is what provided employment for the former miners of the 1980’s and has created global leadership in various areas such as technology and the sciences. And one that has generated big tax receipts for the government.
Taxes have waxed and waned over this period, but overall, the UK has offered a reasonably competitive tax landscape in which to keep the entrepreneur motivated.
Which is why last week’s Budget was closely watched by the UK business community!
Much had been written about potential increases to capital gains taxes (CGT) and the need to increase tax receipts to pay for the record debt incurred by the pandemic. One of the measures mooted was a substantial increase for owners disposing of shares (equity) – or in plain-language, selling a company.
Whilst not reflective of the whole of the UK(!), our poll of various business owners elicited shock and horror at the thought that CGT might increase significantly. The collective view that with a UK economy that has dipped so heavily to deliver the worst contraction in 300 years, now was not the time to discourage business ownership by jacking taxes up…
Well, at least the chancellor did not repeat Geoffrey Howe’s untimely prescription of increased taxes in 1981 during a recession. Fortunately, common sense prevailed and CGT remains untouched. At least for now.
What can we expect going forward?
Public sector debt in five years’ time will be more than 100% of GDP, £2.8 trillion, so this all comes down to how quickly the government wish to tackle debt. Ultimately this will take many decades, but in an era of low or negative interest rates, is debt really the problem?
Creating growth and improved productivity through investment seems like the ‘right cure’ – so the chancellor’s super-deduction tax may well encourage capital spending. Perhaps this will be even sufficient to eventually chip the planned 25% corporation tax hike in 2023?
For company owners, one cannot assume CGT / Entrepreneurs Relief will remain untouched. General consensus seems to be that CGT will be re-visited in 12 – 24 months once the economy shows strong signs of recovery.
So, for owners eyeing up an exit, it may be time to consider what the great Italian author Primo Levi had to say: “If Not Now, When?”
Timing, as they say, is everything. In amongst the melee of Brexit and Covid, the market for company sales (‘M&A’) has been remarkably resilient. And business for us has never been busier. More on that later.
Tags: budget, business owner, Entrepreneurs Relief, tax